Life and Death Planning for Retirement Benefits

Chapter 9: Distributions Before Age 59 ½

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B. Taking extra payment. Taking a payment that is over and above the payments required as part of the series is a modification. See Arnold , ¶ 9.3.02 . See ¶ 9.3.05 for exceptions.

C. Changing the “period” of periodic payments. Changing from annual payments to quarterly or monthly payments (or vice versa), even if the total payments for the year add up to the right amount, could be considered a modification; there is no authority for the proposition that the size of individual payments in the series does not matter so long as the total is the same each year.

D. Changing how the payments in the series are determined. See PLRs 9821056 and1999- 43050.

Effect of divorce on the SOSEPP

If the participant gets divorced in the middle of his SOSEPP, the divorce court may award a share of the retirement plan that is supporting the SOSEPP to the participant’s ex-spouse. Usually the spouse’s share is transferred tax-free to the spouse’s account under a QDRO ( § 414(p) ) or the IRA equivalent ( § 408(d)(6) ). The participant needs to apply for an IRS ruling allowing the SOSEPP payments to be reduced proportionately to reflect the transfer of part of the participant’s SOSEPP-paying retirement plan to the participant’s ex-spouse. See PLRs 9739044, 2000-27060, 2000-50046, 2001-16056, 2002-02074, 2002-02075, 2002-02076, 2002-14034, and 2002-25040. As explained at ¶ 9.2.12 , two or more IRAs can be aggregated for purposes of calculating and paying a SOSEPP. Once the SOSEPP commences, it is essential that no assets be transferred into (or out of) those IRAs from (or to) any other IRA (or plan), because of the following rule: “Under all three methods, substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected .... Thus, a modification to the series of payments will occur if, after such date, there is (i) any addition to the account balance other than gains or losses, [or] (ii) any nontaxable transfer of a portion of the account balance to another retirement plan ....” Rev. Rul. 2002-62, § 2.02(e)(ii). Note that this rule appears to have two parts, a “no additions” rule and a “no nontaxable transfers” rule. Whether there is any relation or distinction between these two sections of the rule is unclear. See PLR 2009-25044, discussed at “C.” Despite this rule, the IRS ruled in PLR 2009-29021 that there was no modification when, due entirely to a financial institution error, distributions from the participant’s workplace retirement plan were rolled into the IRA from which the participant was receiving SOSEPP payment; the participant had asked for these funds to be rolled to a different IRA. See ¶ 9.3.06 (E). A. Transfers among IRAs supporting the SOSEPP. This rule does not preclude moving assets among the multiple IRAs that are included in the SOSEPP account balance ( ¶ 9.2.12 ). PLR 2000-31059. B. Transfer into a new IRA might or might not constitute a modification. The principle stated at “A” should also protect the individual who is taking a SOSEPP from an IRA and wishes to transfer all or part of the IRA to a different custodian, just for investment reasons, Transfers to, from, or among IRAs supporting a SOSEPP